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Borough of Phoenixville – Partial Sale of Water System

February 27, 2020

by Adeolu A. Bakare

On December 4, 2019, the Borough of Phoenixville, Chester County (“Borough”) closed on the sale of a portion of its water system to Aqua Pennsylvania, Inc. (“Aqua”) for $3.46 million.  Importantly, the Borough will retain full ownership and control of its water treatment plant and continue furnishing water distribution service to residents within the Borough.  The transaction with Aqua divests the Borough of the water distribution system previously serving parts of East Pikeland and Schuylkill Townships in Chester County and Upper Providence Township in Montgomery County.

Prior to the sale, the Borough provided water service to approximately 5,500 customers within the Borough and approximately 550 additional customers in the three adjacent townships.  Under state law, the Borough serves customers within its boundaries pursuant to its powers under the Borough Code.  Conversely, the service provided to customers in the townships was subject to the provisions of the Pennsylvania Public Utility Code and the oversight of the Pennsylvania Public Utility Commission (“PUC” or “Commission”).

Historically, the Borough had extended water service to the townships upon request and due to a lack of alternative options for residents and businesses in the area.  However, with competing water suppliers now serving communities in the area, the Borough desired to return to its original role of providing water service strictly to constituents within its borders.

To ensure continuous and reliable public utility service for the subset of customers in East Pikeland, Upper Providence, and Schuylkill Townships, the Borough issued a Request for Proposals (“RFP”) to evaluate qualified candidates to acquire and operate the water distribution system in the townships.  McNees advised the Borough through issuance and administration of the RFP, including review of real estate records to secure certain easements and identify any title concerns to be addressed prior to any closing on the transaction.

Following the Borough’s selection of Aqua as the winning bidder, McNees guided the Borough through both negotiation of an Asset Purchase Agreement for the outside water distribution assets and a Water Supply Agreement committing Aqua to continue purchasing water supply from the Borough’s treatment plant through at least 2026.

PUC Approval and Closing
Because the Borough sought to transfer ownership and operation of the portion of its water system subject to PUC regulation, McNees additionally counseled the Borough through the process of applying for and receiving PUC approval to transfer operational responsibility for the PUC-jurisdictional portion of its water system to Aqua.  The Borough and Aqua initiated this regulatory proceeding by filing a Joint Application seeking PUC approval of the transaction.  Subsequently, both the Office of Consumer Advocate (“OCA”), a state-funded office charged with representing the interests of Residential utility consumers in the Commonwealth, and Pennsylvania-American Water Company (“PAWC”) intervened in the proceeding.

Throughout the PUC regulatory proceeding, McNees led complex negotiations between the Borough and the other three parties to address concerns with service territory boundaries, rate impacts, and service issues.  Notably, McNees advised the Borough through negotiation of an amendment to a preexisting Water Supply Agreement with PAWC.  Although PAWC was not a party to the sale transaction, it had an interest in assuring the Borough/Aqua sale transaction preserved PAWC’s rights under its existing Water Sales Agreement with the Borough.  McNees also negotiated the transfer of 21 customers in Upper Providence Township to PAWC, which resolved service issues related to overlapping PAWC and Borough pipelines in a small portion of Upper Providence Township.  These issues were finalized through execution of a Joint Settlement Agreement filed with the PUC.

The PUC subsequently approved the Joint Settlement on October 24, 2019, thus granting the regulatory approval necessary for the Borough and Aqua to proceed with the Closing on December 4, 2019.

Following the Closing, the Borough remains responsible for furnishing distribution water service only to the 5,500 residents in the Borough.  In terms of benefits, the Borough received a one-time $3.46 million purchase price for sale of a portion of its water system and finalized separate bulk water supply partnerships with Aqua and PAWC.

If you are wrestling with the pros and cons of continuing to operate municipal water or wastewater assets, McNees can help you evaluate the available restructuring options and identify the appropriate solution to meet both short and long-terms goals.  For more information or to discuss your municipality’s circumstances, please contact Adeolu A. Bakare at 717-237-5290/ or James P. Dougherty at 717-237-5249/

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